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Is SolarEdge Technologies (NASDAQ:SEDG) The Next Multi-Bagger?

Simply Wall St

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of SolarEdge Technologies (NASDAQ:SEDG) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on SolarEdge Technologies is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.20 = US$241m ÷ (US$1.6b - US$405m) (Based on the trailing twelve months to June 2020).

Therefore, SolarEdge Technologies has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

View our latest analysis for SolarEdge Technologies

roce
roce

Above you can see how the current ROCE for SolarEdge Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SolarEdge Technologies.

What Does the ROCE Trend For SolarEdge Technologies Tell Us?

Investors would be pleased with what's happening at SolarEdge Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 499%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

To sum it up, SolarEdge Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 578% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if SolarEdge Technologies can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 3 warning signs for SolarEdge Technologies you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.